In bear markets, investors are in no mood to hold risky stocks. Highly-levered firms with a sudden drop in cash flow are at risk of short-term insolvency. In the entertainment space, companies with high debt continue to face high selling pressure. The three stocks to watch are ViacomCBS (NASDAQ:VIAC) and AMC Networks (NASDAQ:AMCX)
ViacomCBS reversed merged recently. Investors should have known that the move did nothing to improve fundamentals. The debt/equity of 1.42 of 20 billion is alarming. The company has valuable assets available for selling but in a downtrend, buyers may not want to pay as much. The $1.25 billion debt offering will still cost 4.75% in interest.
ViacomCBS will suffer from a sharp decline in revenue and negative cash flow during the COVID-19 world crisis.
AMC Networks withdrew its guidance due to the financial impact of COVID-19. Though it has plenty of liquidity, it has debt due over the next three years. The debt/equity is 4.68 times, in which it held $3 billion in debt and $5 billion in total liabilities.
The company’s content is not great. With more content selection from competitors like Netflix, or Apple TV Plus, AMCX stock may continue lower.
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